What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Isetan (Singapore)'s (SGX:I15) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Isetan (Singapore):

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.019 = S$2.7m ÷ (S$190m - S$45m) (Based on the trailing twelve months to June 2022).

Therefore, Isetan (Singapore) has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Multiline Retail industry average of 5.2%.

View our latest analysis for Isetan (Singapore)

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Isetan (Singapore) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Isetan (Singapore) has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 1.9% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Isetan (Singapore) has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

The Bottom Line

To bring it all together, Isetan (Singapore) has done well to increase the returns it's generating from its capital employed. Given the stock has declined 20% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Isetan (Singapore), we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

While Isetan (Singapore) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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